Japan business mood sours in Jan-March as economy skirts recession

By Izumi Nakagawa and Leika Kihara

TOKYO (Reuters) - Japanese business sentiment worsened sharply in the first quarter, a government survey showed on Friday, suggesting that financial market turbulence and sluggish global demand were taken a toll on a fragile economic recovery.

The data keeps pressure on policymakers to deploy additional fiscal and monetary stimulus measures to reflate an economy that is skirting another recession.

The business survey index (BSI) of sentiment at large manufacturers stood at minus 7.9 in January-March, swinging from plus 3.8 in October-December, according to a joint survey by the Ministry of Finance and the Economic and Social Research Institute, an arm of the Cabinet Office.

The index measuring big manufacturers' sentiment three months ahead stood at minus 3.5, a sign the gloomy outlook may discourage companies from boosting wages or capital expenditure, given sluggish demand in China and other emerging Asian markets.

"Weak exports and the yen's appreciation appear to have affected manufacturers' sentiment," said Takumi Tsunoda, senior economist at Shinkin Central Bank. "Overall, the data suggests companies don't have a positive outlook for the global economy."

Companies expect capital expenditure to have risen 8.8 percent in the current fiscal year ending in March, but shrink 6.6 percent in the coming business year, the survey showed.

The world's third-largest economy shrank in the final quarter of 2015 as slow wage growth and sluggish global demand hurt consumption and exports.

While many analysts expect growth to have rebounded modestly in the current quarter, the bleak outlook for global demand has led some to predict another contraction that will push Japan back into technical recession - defined as two straight quarters of economic contraction.

The BSI measures the percentage of firms that expect the business environment to improve from the previous quarter minus the percentage that expect it to worsen.

(Additional reporting by Kaori Kaneko; Editing by Chang-Ran Kim and Eric Meijer)